On September 18, 2007, the Third Circuit affirmed the defense verdict in the multibillion-dollar lawsuit brought by Kirk Kerkorian against DaimlerChrysler alleging that the merger between Chrysler and Daimler-Benz was falsely billed a ‛merger of equals“ but was really a takeover by Daimler of the U.S. automaker. Tracinda Corp. v. DaimlerChrysler AG, 2007 U.S. App. LEXIS 22221 (3d Cir. Sept. 18, 2007). Two procedural points of interest.

1. Jury Trial Waiver. The Stockholder Agreement entered into by Tracinda (Kerkorian’s company), Kerkorian, Daimler-Benz and Chrysler contained a broadly worded jury trial waiver that covered the claims brought by Tracinda against the corporate defendants. But Tracinda also sued certain officers/directors of the corporate defendants on those claims. Relying on arbitration-clause precedent, the District Court struck Tracinda’s jury demand in its entirety, requiring that the case be tried to the Court. Tracinda contended that this was error insofar as it had not waived its right to a jury trial against the individuals. The Third Circuit, observing that a jury waiver is less procedurally draconian that a submission to arbitration (and total abandonment of judicial review), held, under traditional agency principles, that non-signatory corporate officers may invoke an arbitration agreement entered into by their corporate principal, although they could not be compelled to arbitrate against their wishes. It reasoned that:

[W]hen a valid contractual jury trial waiver provision applies to a signatory corporation, the waiver also applies to nonsignatory directors and officers seeking to invoke the waiver as agents of the corporation. This rule is consistent with the concept that corporations can "act only through agents and employees." *** If we did not allow nonsignatory agents of a signatory corporation to invoke a valid contractual jury waiver provision, such an "agreement would be of little practical value," *** as "it would be too easy to circumvent the agreements by naming individuals as defendants instead of the entity" itself [citations omitted].

2. Strict Liability Sanctions Under Rule 16(f). Second, in a split decision (on this issue only), the Third Circuit upheld 2 to 1 a sanctions award of more than $550,000 in attorneys' fees for the accidental — not even negligent — failure to produce 67 pages of responsive documents(out of millions reviewed) until the trial had almost ended. The award was entered under Fed.R.Civ.P. 16(f) for violation of the court’s scheduling order. The issue, however, was purely a discovery failure, and there was no analysis as to whether the non-production was sanctionable under Rule 26(g) (clearly not) or Rule 37 (certainly not under Rule 37(b) or (d), and dubious under (c)). In other word, sanctions were interposed under Rule 16 for a discovery failure that may well not have been sanctionable under the discovery rules, which were specifically adopted to address discovery snafus. Putting aside the seeming unfairness of punishing inadvertent, non-negligent discovery failures, it is troubling that this discovery behavior was not even judged under the discovery rules. Discovery is not generally a strict liability process.